Brazil’s antitrust agency, Cade, on Wednesday approved the takeover of local airline TAM by Chile’s LAN Airlines with some conditions, allowing the companies to form Latin America’s largest carrier.
Cade, in a unanimous decision, removed the final regulatory hurdle in a 16-month wait since the airlines announced the deal, requiring little in the way of restrictions beyond those mandated by its Chilean counterparts.
Regulators in Chile already cleared the deal but imposed a series of restrictions on shared routes and forced the airlines to withdraw from one of two global alliances to which they belong.
With shareholders’ approval the airlines can now form LATAM Airlines Group in a share swap slated for the first quarter of next year. LAN’s and TAM’s revenue exceeded USD$10 billion in 2010 and their combined market capitalisation is second only to that of Air China among the world’s airlines.
Cade’s approval is contingent on the airlines giving up two slots on the Sao Paulo-Santiago route to increase competition.
“There’s no doubt that the concentration on that route, greater than 80 percent (of traffic with a single carrier), generates concerns about competitiveness,” said Cade board member Olavo Chinaglia during the hearing.
“I recommend approval on the condition that the slots are transferred,” Chinaglia said.
The decision comes as Brazilian authorities are courting investment in an already strained aviation industry that is facing the pressure of the 2014 Soccer World Cup and 2016 Olympic Games, which Brazil will host.
LAN Executive Vice President Enrique Cueto will become chief executive of the LATAM group, which will offer destinations from Frankfurt to Sydney and potentially yield nearly USD$400 million in yearly cost savings by 2015.
In Brazil, the new company will face bolstered competition from Gol, which snatched first place in the domestic market for the first time this year.
Gol announced a strategic alliance with Delta Air Lines last week, offering a 3 percent stake and a seat on its board to the US carrier for a USD$100 million investment as they expanded a code-sharing agreement.
Higher fuel costs and a glut of new capacity have challenged Brazil’s airlines this year, driving a wave of consolidation as congested airports and cooling customer demand drag on air traffic growth.
Brazil’s market for international travel could also face stiffer competition. Azul, which has surged to third place in the domestic market since it was created in 2008 by JetBlue founder David Neeleman, is considering flights to nearby countries beginning late next year.